Group supervision
Group-level prudential supervision of insurers, in addition to entity-level supervision, capturing diversification, double counting of own funds, and internal contagion.
Title III of Directive 2009/138/EC (Articles 212 to 266) subjects groups to their own supervision. Supervising a group's subsidiaries one by one misses three phenomena that appear only on a consolidated basis. Double counting of own funds, when the same euro covers both the parent's and the held subsidiary's capital requirement. Real diversification across entities, which pushes group capital below the sum of individual capitals. And contagion, through intragroup guarantees, internal loans and internal reinsurance: a healthy subsidiary can be drained to rescue a struggling one. Group supervision therefore organizes a consolidated solvency calculation, a group supervisor designated among the authorities concerned, and a college where the authorities of the different countries share information. It also covers significant intragroup transactions, risk concentration, and governance at group level. Its limit is political as much as technical. A subsidiary's assets are not freely transferable to the parent, and the local supervisor has a duty to protect its own policyholders first. Yet the consolidated calculation assumes that capital is fungible.
Title III of Directive 2009/138/EC. For a group present in eight member states, the supervisory college brings together a lead authority and seven local authorities, and rules in particular on approval of a group internal model. The fungibility tension showed concretely in the dividend distribution restrictions recommended by European supervisors in 2020: they applied entity by entity, not at consolidated level alone.
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